This story was written by Keith Dawson for the Media Unspun email
newsletter and is Copyright 2002 by Keith Dawson.

M E D I A U N S P U NTelecom's Slow Train Wreck Coming2002-09-23

The slow-motion train wreck that is the telecom sector was all over the news this morning, as it has been since late last week. Reporter Jeff Smith of the Rocky Mountain News seems to have broken word, on Saturday, that Qwest will restate nearly $1.5 billion in revenue, $950 million of it from the now-widely-scorned capacity swaps the carrier engaged in with its peers. The RMN also ran a couple of handy sidebars with brief histories of Qwest's accounting "mistakes" and of the steps its new CEO has taken to get straight with the Street, Congress, and federal investigators.

Qwest was one of the three telecom stories that crowded the top four in today's Wall Street Journal tech section. The New York Times also prominently featured the Qwest restatement. Neither New York paper advanced the story much beyond where the RMN had left it, although the Times did mention rumors of negotiations to sell Qwest wireless properties to Verizon. Many outlets ran a brief Reuters wrap of the Qwest news.

On to WorldCom. The Journal, in a story that began with news of the search for a new CEO, repeated anonymous tips that WorldCom's $7 billion accounting restatement could expand by as much as $2 billion and added that the figure is "fluid." No-namers told the Journal that the new embarrassment has to do with how two Latin American subsidiaries were accounted for. But these matters "don't rise to the level of prior accounting misdeeds," the Journal opined, quoting one of its sources: "These are much more technical accounting close calls versus someone sneaking around moving money from one ledger to another." Just another $2 billion of close calls.

Now to Sprint. The company is the latest in a string of telcos to sell its directory business to relieve crushing debt burdens. Sprint will get $2.23 billion from its Yellow Pages operation from R.H. Donneley, the AP reported on Sunday. In spinning off its directory business, Sprint follows Qwest, McLeodUSA, and BCE, according to the AP and the Wall Street Journal. The Journal noted that the deal will bring Donneley "back to a business it pioneered" -- the company's founder having published the first yellow-page directory in 1886. The Journal's reporter found the downside of all these directory deals: "Directories are a high-margin, low capital-intensive business that generates steady cash flow, which many carriers had used to offset slower-growth businesses." Without the cash cow, other telecom business units will be under even more pressure to perform.

Finally, Global Crossing. What would coverage of any modern business scandal be without incriminating email? In stories that ran last Friday, the Post and the Journal offered an inside view of some of the Global Crossing swap deals, as reflected in internal emails. The post quoted an employee in the finance division: "I wish this company [would] just come clean with the Street regarding our guidance. This swap crap is going to kill us in the long run and I'm personally very fed up with the business case garbage." - Keith Dawson